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Last Update: 07-Dec-12 08:15 ET
AMD trading slightly higher following amended Wafer Supply Agreement
AMD (AMD $2.37 +0.03) announced that it successfully amended its Wafer Supply Agreement (WSA) with GLOBALFOUNDRIES Inc. The closure of amendment negotiations solidifies AMD's new operating model as communicated at the third quarter 2012 earnings announcement. To better align with today's PC market dynamics, AMD and GLOBALFOUNDRIES agreed on purchase commitments for Q4 2012 and established fixed pricing and other terms of the WSA which apply to products AMD will purchase from GLOBALFOUNDRIES through Dec. 31, 2013. "We are committed to develop and grow our business with GLOBALFOUNDRIES, increasing our engagement across our industry leading APU and graphics roadmaps. The newly amended agreement is another step we are taking to further strengthen our relationship with GLOBALFOUNDRIES as well as AMD's financial foundation." Announcement details: AMD lowered its wafer purchase commitments for Q4 2012. AMD currently estimates that it will purchase wafers from GLOBALFOUNDRIES for ~$115 mln in the fourth quarter 2012 and $1.15 billion in fiscal 2013. AMD has also committed to purchase wafers from GLOBALFOUNDRIES for ~$250 mln during first quarter 2014. AMD expects to negotiate the remainder of its 2014 purchase commitments from GLOBALFOUNDRIES in 2013. AMD will make a termination payment of $320 mln related to the take-or-pay agreement with GLOBALFOUNDRIES associated with the adjusted wafer purchase commitments in fourth quarter 2012. The cash impact of the termination fee will spread over several quarters: $80 mln by Dec. 28, 2012; $40 mln by Apr. 1, 2013; and A $200 mln promissory note issued by AMD to GLOBALFOUNDRIES due on Dec. 31, 2013. The termination fee will result in a net one-time charge of ~$165 mln recorded in Q$ 2012. Separately, as AMD moves to standard 28nm process technology, AMD will reduce future reimbursements to GLOBALFOUNDRIES for certain research and development costs. As a result of the amendment, AMD expects to return to free cash flow generation in the second half of 2013.
